Happy Monday Morning! The Canadian economy grew at an annualized pace of 3.1% in the first quarter, surprising to the upside and trumping the Bank of Canada’s growth forecasts. Four hundred basis points and the economy still hasn’t rolled over. This is prompting calls for the Bank of Canada to move off the sidelines and get back to raising rates once again. Here’s the outspoken chief economist of ScotiaBank, Derek Holt. Canada’s housing market continues to be on a tear as a combination of very little supply, surging immigration, a return of first-time home buyers, strong job markets, a premature halt to BoC rate hikes and returning FOMO sentiment drive renewed imbalances. I’ve argued since last year that consensus was far too negative toward Canadian housing as it over-emphasized the pressures facing a minority of super- stretched mortgage holders in a classic case of the tail wagging the dog. The broad fundamentals of Canada’s housing market remain highly constructive and will carry ongoing positive spillover effects for consumption as we saw in the Q1 GDP accounts. Recall that home sales were up by 11% m/m Seasonally adjusted in April for the biggest monthly gain since the initial stages of the

Happy Monday Morning! The blistering hot spring market, which has been plagued by a twenty year low in new listings across the country is finally starting to simmer. This is welcoming news for home buyers, whom instead of competing with six other buyers might only have to compete with three other groups on offer night. An incredible opportunity, some might say.. As of right now there is still just 3.3 months of inventory for sale across the country, conditions remain incredibly tight and prices are still ticking higher. However, with the spring market now in the rearview, many can’t help but wonder if there’s still another shoe to drop. After all, house prices remain sky high and mortgage rates have barely budged. We jacked rates by 425bps and the housing correction ended after nine months. Seems too good to be true. We’re about to get another test with bond yields pushing higher in recent weeks. The Canada 5 year has been on a tear, up 70bps this month alone. Not a great looking chart. While mortgage rates have been rangebound for the past six months, they’re back on the move again, jumping roughly 20bps over the past few weeks across

Happy Monday Morning! Inflation came in hotter than expected in April. Headline inflation ticked in at 4.4%, well above the 4.1% that was expected. It was the first month over month increase in the rate of headline inflation since June 2022. Naturally, panic ensured shortly thereafter. Markets immediately removed their expectations for a rate cut this year and have suddenly reversed course. There’s now an 11% chance of a hike at the June 7 meeting, and nearly a 40% chance of a hike by September 6 according to OIS markets. Furthermore, Scotiabank, who has been incredibly hawkish throughout this tightening cycle is putting their stamp on another 25bps hike in June. That’s bad news if you’re sitting on a variable rate mortgage. According to Desjardins, there are a lot of people up shit creek without a paddle. More than 75% of all variable rate mortgages in Canada have already breached their trigger rate. In other words, the interest owed is greater than the original monthly mortgage payment. These borrowers, along with the banks who dished out these loans, are in extend and pretend mode as amortizations climb to dizzying heights. It’s estimated these borrowers will need to increase their payments

Happy Monday Morning! Anyone following this newsletter since about January knows that the housing market has surged back to life. Inventory has fallen off a cliff at the same time buyer sentiment has rebounded, coinciding with the BoC’s Tiff Macklem taking his foot off the gas. In the GTA, home sales ripped 27% month-over-month in April on a seasonally adjusted basis. That’s the largest bounce since the depths of the pandemic. On the West Coast, seasonally adjusted home sales in Vancouver have jumped 50% over the past three months, inching closer to their long term average despite inventory at two decade lows. The result has been meaningfully higher prices since bottoming in the fall. This is hard to rationalize given mortgage rates remain elevated and affordability remains illusive. We might be inching closer to a recession but buyers don’t seem to care. According to National Bank, housing affordability hasn’t been this bad since the 1980s. Undoubtedly this is pushing prospective home buyers into the rental pool. Now add one million new migrants over the past twelve months and you can see where things start to go wrong. According to a recent rental report from Zumper, the national vacancy rate slipped below

Happy Monday Morning! We get readers of all stripes on this newsletter. Policy makers, bankers, property developers, and every day people trying to figure out what’s going on in the crazy world of Real Estate up north. We’ve hit nearly seven thousand subscribers now which i’m incredibly grateful for. I’m not sure if David Rosenberg is one of them, but the esteemed economist echoed many of my thoughts this past week. Here’s Rosie in his widely followed Breakfast with Dave newsletter. You don’t say. Political pressures are poised to ramp higher as home prices begin climbing once again. April data points to a continued rebound across most major markets. Here in Vancouver, home prices have increased for three consecutive months as measured by the home price index. Multiple offers are back in full swing, especially for entry level product. This has confused a lot of prospective home buyers considering mortgage rates are still hovering near 5%. However, when looking at standing inventory its really not that hard to figure out, the number of homes listed for sale on the MLS as of the end of April stood at 8263, an eighteen year low. In other words, it’s pretty hard to

Happy Monday Morning! We’ve talked a lot about the recent mismatch between population growth in this country and the ability to deliver enough new housing supply to not only meet demand but actually moderate price growth. Housing is all about supply and demand after all. We’ve tried to obliterate demand but it seemingly won’t go away. Here’s a short list of demand side policies in no particular order in recent years: Thanks for reading The Saretsky Report! Subscribe for free to receive new posts and support my work.Subscribe Every level of government has tried to slow demand with little results. Yes some of these policies lack real teeth, and yes we did kill the high-end luxury market. The luxury market remains on life support when we told foreigners to stop sending their money over here. So while we have eliminated the foreign owned pied-à-terre, we have not actually made housing more affordable for the average Canadian, it’s actually gotten worse! It seems obvious we must now seriously look at the supply side of the equation. If it feels like i’ve been beating a dead horse in recent months I apologize. But please consider the following. CMHC just dropped its latest

Happy Monday Morning! We’ve talked a lot about immigration. Remember, the Feds targeted 430,000 permanent residents in 2022 and hit those with ease. Those targets have been set even higher moving forward. However, the real issue here is these figures do not include non-permanent residents. It seems strange to omit these people considering the fact that once you factor them into the calculations our population actually ballooned by a million people in 2022. This is either incompetence or a total blind spot at the federal level. It’s something I discussed this past week on our podcast with former Conservative leader Erin O’Toole. It gets more complicated when you consider its actually the responsibility of provincial and municipal governments to approve new housing supply. Suffice to say getting three large bureaucratic governments on the same page is like running a marathon with a pebble in your shoe. If you manage to limbo through all the red tape, congrats. Your next challenge is eating a doubling in financing costs, volatile and rising construction costs, and a never ending increase in development charges. In fact, CMHC just pumped their development fees by 100-200% on their rental construction financing program. It’s no wonder housing starts are

Happy Monday Morning! For the first time in a year Canadian home prices ticked higher. Monthly data published by CREA noted a very modest 0.2% month over month increase in national home prices. However, regular readers here know this has been ongoing for several months now. Prices in most major markets, across most product type, have been pushing higher since January. Yes, it’s certainly surprising given mortgage rates, while they have stabilized, remain elevated. The macro doesn’t look great, lots of chatter about a looming recession, stubbornly elevated inflation, and potential job losses ahead. There are a lot of risks out there yet home buyers seem willing to compete in bidding wars. Here’s the problem. The majority of home buyers aren’t thinking about the macro. Most people just want a house to live in. And so the micro trumps the macro, at least in the short run. And the micro data overwhelmingly shows that demand is outpacing supply. The number of new listings hitting the MLS hit another 20 year low in the month of March. Yes, you had to go all the way back to the year 2003 when new listings were this low. There was 3.9 months of

Happy Monday Morning! A few weeks ago I wrote a post called Everything is a Choice. I argued that many of the housing issues we are facing today are policy decisions. They are choices made by elected officials. Whether it be interest rates, immigration policy, taxes, mortgage underwriting standards, or municipal zoning. Many of these issues can be addressed with the stroke of a pen. Love him or hate him, David Eby is doing just that. The new premier of BC just announced single-family zoning across British Columbia communities will come to an end as early as this fall, when the provincial government is expected to introduce legislation that overrides the zoning regulations of municipal governments. The legislation changes would allow up to four homes on a traditional single-family lot in municipalities across the province. This enables homeowners to create secondary suites, such as basement units or potentially even duplexes, townhomes, and triplexes. This is what you call missing middle housing and it is badly needed. “Without more types of homes, we risk pushing more of our future generation away. We risk creating neighbourhoods where playgrounds are quiet, sidewalks are empty, and coffee shops are vacant. Small-scale, multi-unit homes are how

Happy Monday Morning! Everywhere you scroll these days there is some debate about the housing mess, people arguing on social media, all levels of government pointing fingers and blaming each other for the housing crisis. “Vote for me and i’ll fix housing.” It is all political theatre. Case in point for those following along at home, the federal government introduced a two year ban on foreign purchasers of residential real estate this year. The same government that labelled people xenophobic a few years ago for even suggesting a foreign buyer ban. They folded like a cheap tent in the wind after mounting political pressure and quickly rushed a new bill through. By doing so the new law prevented many developers from acquiring residential land for the purposes of building new housing supply. You see, many local developers are private corporations with non-Canadian equity partners. Any developer with more than 3% of its corporation controlled by a foreigner was prevented from acquiring new land to develop housing. In other words, you’re a local Vancouver developer but your capital partner in the US who controls part of the company prevents you from building purpose-built rental condos. So new housing supply gets throttled

Happy Monday Morning! Many of the issues we are facing today are policy decisions. They are choices made by elected officials. While I believe most policy makers are well intentioned it doesn’t mean we should not hold them accountable when mistakes are made. After all, elected officials are put in place to serve the best interests of its citizens, this is why we go to the polls every four years. And so it is worth evaluating some of the data this week to discuss where we could be going wrong. Let’s start with inflation. A global pandemic emerged and our elected officials made the decision to shut down the global economy. It turns out it’s easier to turn off the economy than it is to turn it back on. Governments panicked and the floodgates opened. Massive deficit spending. Too many dollars facing too few goods. And while spending has slowed, it’s still 11.3% higher than pre-pandemic levels on a real per capita basis. This is only making the Bank of Canada’s job even harder! Please keep this in mind when the federal government unveils their budget this week. While inflation is now slowing, it remains elevated, and largely self inflicted.

Happy Monday Morning! National housing data dropped for the month of February, and there’s a lot to unpack here. Home sales plunged 40% year-over-year in February, coming off a blistering hot market this time last year. When you zoom out further it was the weakest February since 2009. However, there’s a caveat. New listings utterly collapsed, falling to their lowest levels since February 2003. Yes, that’s a 20 year low across the country. That’s not even adjusting for the massive growth in both population and housing stock over the past two decades. Quite simply, home sellers have gone missing. As we mentioned a few weeks ago, there are a few reasons for the lack of new listings: So you’ve got a ten year low in sales and a twenty year low in listings. In other words, zero turnover. A horrible market for Realtors and mortgage brokers, although no need to feel sad for them- the previous two years were fairly generous. The illusiveness of new listings are good for prices. They’re firming up in essentially every market. For the right product, which is basically anything entry level (the only thing people can afford) is moving quickly and often in multiple